Part One

Hale Everson disliked silence and wasn’t bothered by visible distractions. A natural multitasker, he liked to keep D.C. Span, the 24-hour news channel devoted to Washington politics, on his office TV.

As the Human Resources director for the Southern operations of Fuego Motors, a leading European car maker, Hale had been working for years to create a state-of-the-art health care monitoring system for the automobile manufacturing plant’s employees.

On the computer monitor in front of him, there were no less than 10 open spreadsheets.

Hale loved data and along with the auto plant’s risk manager, he had compiled plenty of it.

Hale paused at his keyboard and shifted his attention to his TV set. The U.S. Senate was voting on the passage of the Patient Protection and Affordable Care Act.

“Come on boys, come on,” he said, as he watched the “yes” votes pile up. Hale wasn’t worried about the outcome of the vote. He’d been preparing for this day for years.

***

When it came to what he required to work well, Brady Heller, the CFO for Apex Care, a regional hospital, was a door-shut type, even though he had a corner office. Brady hated any sort of distraction.

Scenario Partner

It wasn’t until he got home late that night and watched the 11 o’clock news that Brady found out the Affordable Care Act had passed. Brady watched impassively as his wife sat next to him.

Always keeping his cards close to his vest, Brady quietly calculated what Apex Care had spent over the past four years to acquire numerous specialty practices to build a state-of-the art Accountable Care Organization.

Brady wasn’t worried about the outcome of the vote either. He’d also been preparing for this day for years.

***

Brady and Hale, friends since college, were walking down the fourth fairway at the local country club when the two community leaders, key members of the local chamber of commerce, put their well-disciplined heads together.

“Nice job picking up Neil Zane’s cardiac practice buddy,” Hale said to his friend with a smile.

“Thanks,” Brady said, as he scanned the grassy rise for his golf ball.

“From what I can tell, you’ve got all the pieces in place,” Hale said.

“I sure hope I do. Cost us enough,” Brady said as he turned to set up a 2-iron shot.

“Brady, hold on just second,” Hale said. Brady turned and looked soberly at Hale, alert to the business-like tone Hale had switched to.

“I think I’ve got all my pieces in place too, and I don’t want to wait ‘til the wind changes. I want to bring my entire workforce to Apex on a direct contract. I’ve got all the data…”

“I bet you do,” Brady said.

“And with my documentation we can get this done sooner rather than later,” Hale said.

“You got everybody ready?” Brady asked.

“I’ve got everybody on board, from Turin to where we’re standing right here,” Hale said, and Brady could tell that Hale meant every word.

Within three weeks, the local business weekly ran a story under the following headline and subhead.

“Fuego and Apex Ink Healthcare Pact”

“Savings and better quality of care in focus in multi-million-dollar arrangement”

The story featured a picture of Brady and Hale shaking hands over a conference table.

Part Two

Under the direct contract with Apex, Fuego’s workers and their dependents would receive exclusive health care at the regional health giant for three years. The contract was set to renew as long as costs didn’t deviate more than five percent on an annual basis from projections.

Seven months after the direct contract deal was announced, Serge Bernstein, head of Apex’s high-profile bariatric medicine and weight loss clinic, requested a face-to-face meeting with Brady.

“I have to ask you, did you have access to Fuego’s health care data before you agreed to this deal?” Dr. Bernstein asked Brady.

“I know as a matter of fact that the company keeps excellent records,” Brady said as an opening defense.

“Well, I keep pretty good data on my end as well,” Dr. Bernstein said, as he expertly swiped his digital tablet to bring ups some figures.

“The contract with Fuego says costs can’t deviate more than five percent from projections,” he said.

“That’s correct,” Brady said.

“What would you say if I told you that I am seeing instances of diabetes in that population at about 250 percent of projections?” Dr. Bernstein said.

“I’d be very concerned,” Brady said.

“Then you should be very concerned,” Dr. Bernstein said.

Two weeks later it was the hospital system’s head of orthopedics, Krishnan Gilani, who was sitting in Brady’s office.

“I’ve got a four-week waiting list for initial non-emergency evaluations,” Dr. Gilani said.

“Why?” Brady said.

“Have you heard of the Affordable Care Act? This autoworker population requires a lot of care. Many of them are overweight, which complicates treatment. I’ve also got a threefold increase in overall caseload due to all the previously uninsureds coming on board under the new law,” Dr. Gilani said.

“Wow,” Brady said.

“Wow indeed, Mr. Heller,” Dr. Gilani said. “These are substantially out of whack figures and of great concern,” Dr. Gilani said.

***

Hale and Brady were mostly silent as Hale lined up a putt and the two of them digested the information that the increased number of insureds coming in for treatment was threatening to broadside their direct contracting arrangement.

“It’s the first year of the program,” Hale said after his putt lipped out. “I’m sure the numbers will settle down in years two and three.”

“You’re probably right,” Brady said as he stood over his putt.

“You’re probably right.”

Part Three

Hale’s view of his in-office television screen is obscured by the bulk of the autoworkers’ union vice president. To the vice president’s left is the union president. Neither of them looks healthy and neither of them looks especially pleased.

“Eighteen months ago you sold this hospital deal to us, saying it would be better for the workers and their families. You said we’d get better treatment, cheaper, and better access to treatment,” the union president said.

“I did say that, that’s true,” Hale said

“None of that was true,” the vice president said.

“We got a guy on the line, he twists his back trying to keep an engine compartment bonnet in place. You know how long it takes him to see a back specialist?”

“I don’t…” Hale begins.

“How about five weeks?” the vice president said. “Five weeks!”

“And this is the only hospital we can go to,” the president said.

“I thought health care reform was about choice. You know what? We have no choice,” the union president said.

“Am I in Russia now because I feel like I’m in Russia,” the union vice president says to the union president.

The quarterly meetings between hospital management and the medical team leaders have become so fraught with tension for Brady Heller that they begin to feel like out-of-body experiences.

Dr. Bernstein, Dr. Gilani and Dr. Helen Beers, chair of the cardiac unit, have Brady in their cross-hairs.

“When you brought my practice into your system, I was assured that I could maintain my care standards, that my cost of risk would be reduced by 20 percent and that my revenues would increase by 30 percent,” Dr. Beers begins.

“None of that has happened,” she said, fixing formidable steel blue eyes on Brady through her titanium eyeglass frames.

“Instead I’m seeing delays in payment. I am seeing care standards that I never would have tolerated independently, and I am seeing this across a number of departments, not just my own,” she said.

“We want access to full financial documentation under the terms of our contracts or we are walking, I am not kidding you,” Dr. Bernstein said.

Brady looked from Dr. Bernstein to Dr. Gilani to Dr. Beers. Nowhere was there mercy or understanding.

Hale has a board meeting of his own to attend.

“If we pay them this $3 million that they’re asking for,” the CFO for North America says to Hale.

“On top of the contracted amount,” he says, looking around the table for emphasis, to make sure everyone is getting his point.

“On top of the contracted amount,” he says yet again, unmercifully.

“What assurances do we have that we’re not going to be shelling out another $3 million in six months to a year from now?” the CFO asks.

“I’m not sure that I can offer you any assurances,” Hale says.

“We’re seeing treatment delays and co-morbidities that are beyond the scope of our projections,” he adds.

“I thought this was the best health care money could buy,” the CFO says.

“It may be,” says the North American CEO, who has made a special point to be at this meeting.

“The issue is we didn’t know it would take this much money to buy it.”

The CEO fires Hale Everson that very evening.

Summary

A sizable regional employer and a large health care system come to grief when their directly contracted health care arrangement is blind-sided by health care reform implementation. The planners of the deal fail to take into account the delays in treatment that large numbers of previously uninsured patients coming into the system will create. Contrary to their promises, standards of health care deteriorate and key stakeholders become alienated.

1. The importance of good data: Data is only actionable if it is good data. Fuego Motors thought it had adequately measured the health care risks inherent in its employee population, but events proved it to be woefully wrong. The advent of the Affordable Care Act is going to impact medical treatment and loss projections are going to have to be altered.

2. Assess your contract: Direct contracts to provide health care services to employers might make a lot of strategic sense, but they can turn into straightjackets if not written with enough flexibility to account for increasing health care costs and the unknowns of health care reform.

3. Medical practice acquisition is fraught with perils: Bigger is not necessarily better when it comes to health care business management. Conflicting work cultures and compensation and quality of care expectations can lead to disagreements, litigation or worse if contractual provisions aren’t spelled out adequately.

4. Health care regulation is in conflict: Federal health care reform is not the only wind sweeping the waters. There are numerous federal and state entities regulating health care and their missions and mandates are not in step with each other. Understanding the full lay of the land moving forward is a must.

5. Move with measured steps: There is so much going on in health care practice and regulation right now that the unknowns outnumber the knowns. Look at acquisition targets with more caution than ever before.

6. Be fully transparent: Both sides thought they had all the data they needed. But in the end, their failure to completely share with their data with their respective teams created unpleasant surprises. Being fully candid about all risks is the best strategy in this unsure environment.

The Webinar

The issues covered in this scenario were in part based on the impact of health care reform. This follow-up webinar focused on specific changes to the health care market in the wake of Affordable Care Act implementation and presented actions insureds can take to prepare themselves moving forward.

Download a copy of the slide presentation here.